USOIL Weighed by Slowing Demand Outlook & Covid Fears

  • USOil
    (${instrument.percentChange}%)

USOIL Analysis

Black gold is having difficulties again this month and heads towards its second straight losing week, weighed by fears over demand for oil and China's Covid-19 situation, as market also try to assess possibilities of a Fed rate-increase slowdown.

China may have eased some quarantine measures recently, but continues to adhere to the strict zero-Covid strategy, amidst rising infection numbers. These factors have an adverse impact on economic activity, which was reflected in the latest data from the worlds second largest consumer of oil. Retail Sales dropped by 0.5% in October, while Industrial Production grew by 5% - less than the previous month.

During yesterday's earnings call, CEO of tech and retail giant Alibaba said that merchant operations and consumer logistics were hit by the pandemic resurgence, which also affected this month's 11.11 shopping festival. [1]

In another negative factor for the commodity, both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), slashed their demand growth forecasts for the next year. [2], [3]

Meanwhile markets have pared back their expectations for the Fed's tightening path, after last week's soft CPI report, with some speakers considering a smaller hike next week, while others warned on the dangers of stepping back too soon.

The technical outlook has not changed much from our previous analysis, on which we had talked of the risk for new monthly lows. This materialized yesterday and USOil is now susceptible to sub-79.88 moves, although new 2022 lows (74.26) don't seem easy in the near-term.

However, USOil steadies today, the Relative Strength Index points to oversold conditions and the US Dollar faces difficulties, as today's European session gets underway. As such, it may find the opportunity to react higher, but daily closes above the EMA200 (at around 87.00) will require a catalyst. Successful effort will eases downside momentum, but the twice-rejected 94.00 region looks distant.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 18 Nov 2022 https://www.alibabagroup.com/en-US/ir-financial-reports-quarterly-results

2

Retrieved 18 Nov 2022 https://www.opec.org/opec_web/en/publications/338.htm

3

Retrieved 30 Nov 2022 https://www.iea.org/reports/oil-market-report-november-2022

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